May 2 (Bloomberg) -- Have you heard about this poor beached
whale up in Canada that has gotten all the blogs so excited?

As the story goes, the process of decomposition inside the
dead blue whale is causing gas to build up in its carcass,
inflating it like a giant balloon. The concern is that a tiny
disturbance, or maybe nothing at all, will cause it to explode
and send a hard rain of rotting blubber and assorted whale bits
falling upon a sleepy Newfoundland village.

Alarmingly, some market observers with bold-faced names are
viewing U.S. stocks just as suspiciously. They warn that
valuations are filled with gas and a tiny disturbance, or maybe
nothing at all, will cause the bubble to explode and rain bits
of rotting equity blubber all over the nation’s sleepy long-only
portfolios.

Tom DeMark, who created a bunch of complicated technical
indicators and named them after himself, sees a chance the S&P
500 will drop 11 percent starting as soon as next week. His
horoscope hinges on a punchlist of various levels being reached,
and if you’re interested in the details you should read Joe
Ciolli’s interview with him.

Jeremy Grantham, chief strategist at Grantham Mayo Van
Otterloo & Co., said, in effect, the belly of the S&P 500 will
fill up with about 20 percent more gas before exploding after
the next U.S. presidential election. (Makes you wonder who the
heck he expects to win the election?)

Wheezy Noise

Still, just like with the Canadian whale, there are those
who believe any excessive gas will simply leak out on its own
rather than causing a massive explosion in the entire market.
That may already be the case with the wheezy noises heard from
the Russell 2000 Index and Nasdaq Composite Index, which are
down 6.1 percent and 5 percent respectively from their March
peaks.

By monkeying around a bit with Excel, you can compare
valuations based on trailing earnings with ratios based on
projected future earnings and start to see some spots where the
valuation gas may be able to resolve itself on its own. (It
helps to view the market as a collection of many beached
dolphins instead of a giant whale in this exercise, though for
fish lovers it may be a difficult vision either way.)

Real Estate

Topping the list is Health Care REIT Inc., a real-estate
investment trust that invests in medical and senior housing
properties. With a trailing P/E of about 676 you may be tempted
to yell “thar she blows!” and run for cover. However, its
valuation based on its estimated earnings over the next 12
months comes back closer to earth at 71. That’s still a pretty
high ratio, but certainly not as alarming, and the difference
between the two is the biggest among S&P 500 companies.

Three other REITs -- Equity Residential, Vornado Realty
Trust and Crown Castle International Corp. -- are in the top 10
of S&P 500 companies with the biggest spreads between trailing
and forward P/Es. This is not too surprising, given that real-estate companies are projected to increase earnings by 19
percent in 2014, second only to chipmakers among 24 industries
in the S&P 500. (True wonks may prefer to value REITs based on
funds from operations instead of earnings-per-share, but that
disallows an apples-to-apples comparison.)

Usual Suspects

Elsewhere among the top ten with the biggest spreads
between trailing and forward valuations are some of the usual
suspects that have been hit with the heaviest selling from the
recent rotation out of growth stocks: Electronic Arts Inc.,
Amazon.com Inc., Vertex Pharmaceuticals Inc., Netflix Inc. and
Adobe Systems Inc. each show up with multiple spreads of at
least 68.

Interestingly, the bottom of the list is similar to the
top, with REITs Boston Properties Inc., Macerich Co. and
Prologis Inc. topping the ranks of stocks whose valuations show
they are more expensive based on future earnings than past. They
are in the minority: all told, there are 413 stocks in the S&P
500 that are cheaper based on forward earnings estimates than
in-the-book results.

As for that Canadian whale, has anyone tried a whale-sized
dose of Mylanta?